Being the biggest has its benefits. It also puts a bullseye on your back: When you are number one, you only have one place to go—down.
Marriott International has the most rooms in its system than any other global lodging company. It also has a loyalty program, in Marriott Bonvoy, that numbers more than 200 million members. But Hilton is closing in fast, according to recent reporting. The arms race for more and engaged members has never been more fierce, not only to ward off the credit card companies that are taking more share, but to also entice more developers to partner with.
On Marriott’s first-quarter earnings call, President and CEO Tony Capuano put loyalty front and center, noting the five-year anniversary of Bonvoy, which, he said, added nearly seven million members during the quarter. “Looking ahead, we continue to focus on new ways to enhance the platform and connect with our members in their daily lives,” he said, underscoring such moments as Taylor Swift concert experiences. And while loyalty rolls matter, Capuano said he was more focused on involvement. “On the list of loyalty metrics, size is important, but engagement is more important,” he said.
Adding new loyalty members can be as much about points and experiences but also choice in hotels. Marriott brands have typically skewed toward the upscale and higher ends of the spectrum, but recently—and not unlike its peers—it has either through acquisition or launch added new brands that participate in the lower echelons of the business, in order to capture more travelers, especially ones who can’t afford to always stay at the W or Ritz-Carlton. Recent additions include StudioRes, a midscale extended-stay brand with an estimated construction cost of around $13 million. “Our designers are equally focused on maximizing the efficiency and minimizing the cost-to-build of the StudioRes prototype to ensure that it can be built at a fully loaded cost that is consistent with the return expectations of owners and franchisees,” said Noah Silverman, global development officer, US & Canada for Marriott International, of the brand. “We also want to be careful not to add ‘bells and whistles’ to enable us to keep the model intact and the efficiencies in place.”
In 2022, it acquired the midscale City Express brand, with a primary focus on Latin America, though additions to North America could come. In fall 2023, Marriott launched Four Points Express by Sheraton, a brand for the midscale segment in Europe, the Middle East and Africa (EMEA).
Now, Marriott says, another midscale brand could be coming soon, this time a 100% conversion brand, that has the markings or comparisons to Hilton’s launch of Spark by Hilton, which was launched in January 2023. Capuano offered few details on the new brand—he did say more details would be coming in about a month—calling it a “conversion-friendly global brand.”
The romance with conversion brands is based squarely on the current interest rate market, where obtaining new construction loans is difficult due to the higher rate environment, which, even if it does come down, will likely not be back to pre-pandemic levels. Marriott, Capuano said, has “a track record of doing conversions when we find an environment like this, where conversions are important because of the debt markets. We Learned that members of Bonvoy seek price points and value properties in the midscale tier. Given the climate for new-construction debt, having a platform that can pivot to conversions, the timing seems perfect.”
Though lending is constrained, Marriott CFO Leeny Oberg added that there is more confidence: “We’ve seen an increase in construction starts in the U.S. at about 25% compared to a year ago.”
Conversions account for around 30% of new Marriott signings.
By the Numbers
In the quarter, Marriott grew year-over-year RevPAR to 4.2%, with ADR increasing 3% and occupancy around 66%, nearly 100 basis points higher than at the same time a year ago. “We continue to gain RevPAR index across our portfolio and increase our market share of global hotels,” Capuano said, though, later in the call, noting that he doesn’t place as much emphasis on the metric “because we’ve got many comp sets now where the bulk of the set is our own distribution,” one drawback of scale.
Capuano underscored the strength in group business, which, in the U.S. and Canada, grew nearly 5% YOY.
Leisure RevPAR was flat in the U.S. and Canada with more customers going abroad to find warmer weather, noted Oberg.
Performance metrics notwithstanding, first-quarter net income totaled $564 million, compared to reported net income of $757 million in the year-ago quarter.
At the end of the quarter, Marriott’s worldwide development pipeline totaled over 3,400 properties and nearly 547,000 rooms, including roughly 27,000 pipeline rooms approved, but not yet subject to signed contracts. More than 202,000 rooms in the pipeline were under construction as of the end of the first quarter.
Internationally, Greater China experienced a 6% increase in RevPAR while growth was strong in January and February rising 10% for those two months. “Demand weakened a bit out to the Chinese New Year with slower macro-economic growth,” Oberg said. “We actually a tremendous quarter of signings in Greater China in the first quarter as well as APAC, with excellent continued demand for our brands.”
Marriott raised its guidance, with expectations for full-year RevPAR to be between 3% and 5%.
On the capital allocation side, Oberg referenced two Marriott-owned assets that each are going through renovations and, once completed, Marriott will look to divest, further pushing its asset-light approach. “Our philosophy remains the same,” she said.
Marriott has invested $500 million in the Sheraton Grand Chicago Riverwalk, with $200 million toward CapEx and $300 million to the elimination of a previously recorded guarantee liability. The W New York Union Square, which Marriott paid just north of $200 million for back in 2019, will have completed its renovations soon, done by architecture firm Rockwell Group. Oberg said that Marriott would “love to recycle these assets” and sign long-term management contracts.